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The tenth and most recent correspondent banking survey was conducted in May 2016 and, like the previous two surveys, covered only those banks with an average daily turnover on loro accounts of at least €1 billion. This threshold was introduced in 2012 in order to increase the overall efficiency of the survey. Sixteen banks located in seven euro area countries (Austria, Belgium, France, Germany, Italy, Luxembourg and Spain) participated in the tenth survey.
However, it is acknowledged that nostro account turnover may be underrepresented, as the largest banks mostly manage loro accounts in bilateral relationships. The banks participating in the survey may therefore not be representative of the nostro market, which is less concentrated and has a higher number of smaller banks as customers, rather than service-providing banks.
The results of the tenth correspondent banking survey show a decrease of almost 10% in loro account turnover since 2014, as well as a decrease in the number of customers and in the average size of transactions. Although correspondent banking remains an important channel for making payments in euro, the completion of the SEPA migration and the introduction of new regulatory requirements for credit institutions, along with a general shift in business strategy, have significantly contributed to an overall decrease in correspondent banking business in the last few years. One main reason for the decrease in correspondent banking activity is the increased compliance costs associated with regulatory requirements, specifically those related to Know Your Customer (KYC) and Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) procedures, which have led to changes in the business strategies of the survey participants. The decrease in correspondent banking turnover and activity overall could also be explained to some extent by the completion of the SEPA migration, which has taken place since the publication of the previous correspondent banking report. Most banks are pointing to a growing tendency to assess the profitability and risks of their business lines, customers and even jurisdictions and, based on these assessments, to maintain only those correspondent banking relationships where the business returns justify the cost of investment and where risks can be well-identified and managed.
Comparing the results of the tenth survey with those from previous surveys, there seems to be a tendency for relatively small banks to have decreasing correspondent banking activity, while larger banks, already specialised in providing correspondent banking services, are maintaining or even enlarging their customer base. With regard to transaction values, the time series data also point to a stable or increasing turnover for the largest banks in the surveys (with very few exceptions). In general, the smallest banks in the previous surveys no longer fulfil the €1 billion threshold. This is in line with the constant decrease in the number of banks participating in the ECB’s surveys and with the higher concentration ratios in the correspondent banking market.
Looking ahead, some banks expect an increase in activity due to higher customer numbers and sales of services, while others suggest the opposite, due to an environment of high regulatory burden and limited risk appetite. Some of the survey participants also indicated an expected increase in competition from fintech companies offering digital solutions. Moreover, smaller banks might enter correspondent banking arrangements in order to avoid the costs and requirements of direct participation in payment systems.